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s People Window Help Take a Test -Patrick Quigley Secure! https://www.mathxl.com/Student/PlayerTest.aspx?testid-172973966&centerwin..yes; FINC 300 (01): Fall 2017 Test:Exam 2 Submit Test This Question: 4 pts 13 of 30 (22 complete) is Test 100 pts possi Question Help Capital Asset Pricing Model) The expected return for the general market is 10.0 percent, and the risk premium in the market is 5.8 percent. Tasaco, LBM, and Exxos have betas of 0.801, 0.683, and 0.583, respectively What are the appropriate expected rates of return for the three securities? The appropriate expected return of Tasaco is %. (Round to two decimal places.) The appropriate expected retun of LBM is%. (Round to two decimal places.) The appropriate expected return of Exxos is % (Round to two decimal places.) Enter your answer in each of the answer boxes.

Explanation / Answer

Expected return for the market = 10.8%

Risk premium = 5.8%

we know risk premium = Expected return for the market - risk free rate

so risk free rate = 10.8 - 5.8 = 5%

now from CAPM model,

expected return of stock = risk free rate + beta * (risk premium)

so for Tasaco, return = .05 + .801 * .058 = 9.64%

for LBM, return = .05 + .683 * .058 = 8.96%

for Exxos, return = .05 + .583 * .058 = 8.38%

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